IMF says still need ‘credible’ debt relief for Greece

Greece Finance Minister Euclid Tsakalotos said he hoped to see a final deal in time for the May 22 meeting of eurozone finance ministers, which must approve the agreement.

Despite an agreement reached Tuesday on a reform package, Europe still needs to provide “credible” debt relief to Greece before the International Monetary Fund can provide more financing, an IMF official said.

Greece and its creditors closed a troubled chapter in the negotiations with a preliminary deal on pension and tax cuts after many months of talks.

“Now, this will have to go hand in hand with a credible strategy for how to restore debt sustainability,” said Poul Thomsen, head of the IMF’s European Department.

Those discussions on how to address the Greek debt burden are only now getting underway, he told reporters in a conference call.

“Once we have (a) program that consists of both legs — strong policies and strong debt relief measures — we can take it to the board” of the IMF for approval.

But that could be the thorniest part of the negotiations with Europe, which has been reluctant to provide more debt relief, particularly Germany, where additional concessions are unpopular and a general election is looming in September.

Greece Finance Minister Euclid Tsakalotos said he hoped to see a final deal in time for the May 22 meeting of eurozone finance ministers, which must approve the agreement.

A compromise is required to unblock a tranche of loans Greece needs to repay seven billion euros ($7.6 billion) in maturing loans in July.

Thomsen said the fund is willing to agree to a deal in which debt relief is only delivered at the end of the agreement, and is contingent on “Greece meeting the targets.”

However, he would have to provide assurances to the IMF board “that we have a common understanding with our European partners of what kind of measures will be needed to deliver that debt relief.”

– Growth-friendly measures –

The official said the IMF welcomed the agreement between Greece, the European Commission and European Central Bank, which “we think will allow fiscal policy to become much more growth friendly.”

The Greek government agreed to reductions in tax breaks and pension cuts, which Thomsen said will broaden the tax base and allow lower tax rates. Athens also agreed to reduce pension costs to permit “more growth-friendly spending” on measures like targeted social benefits.

Greece and its European creditors agreed to a third, 86-billion-euro ($94-billion) bailout deal in July 2015, but the IMF had refused to participate without significant debt relief.

The nation’s debt in 2016 stood at nearly 315 billion euros or 179 percent of annual economic output, up from 177.4 percent in 2015.

The IMF also has resisted the European push for Greece to achieve a fiscal surplus of 3.5 percent of GDP, which Thomsen had warned would require that more austerity be imposed in the crisis-ridden country.